Economist shareholders in talks to buy out Pearson
Pearson is in negotiations to sell its 50 per cent stake in the Economist Group, publisher of the Economist magazine, to other shareholders in the group including the investment vehicle of Italy’s Agnelli family.
The talks, which come in the same week as Pearson’s £844m sale of the FT Group to the Nikkei Group of Japan, could in effect complete the British company’s transformation from a diversified family conglomerate to a business focused solely on education. Its only large non-education interest would be a 47 per cent stake in Penguin Random House, the book publisher.
Exor, which is run by John Elkann, scion of the Agnelli family, said its role in the talks that may lead to the “possibility of increasing its investment in the group”.
It added: “Were it to proceed, Exor’s increased investment would in any event represent a minority shareholding in the the Economist . . . also reflecting Exor’s strong commitment to the editorial independence that lies at the heart of the Economist’s ethos and success.” Mr Elkann is on the Economist Group’s board and the group already owns 5 per cent.
A person close to Exor said, it would not be seeking the full stake being sold by Pearson.
Pearson’s stake would be worth about £400m, two people close to the situation said. That would give the Economist Group a similar valuation to the FT Group, even though its operating profits are more than double.
The Economist Group — which includes information providers the Economist Intelligence Unit and CQ Roll Call — had operating profits of £60m last year, compared with the FT Group’s £24m.
Other potential buyers include the three families that have long controlled most of the 50 per cent of the Economist that Pearson did not own: the Schroders, the Cadburys and the Rothschilds, one person close to the situation said. Lynn Forester de Rothschild and her husband Sir Evelyn de Rothschild control about 22 per cent of the Economist Group.
A deal is not imminent, but is expected to be agreed over the summer, the person added.
For Exor, the move comes during a period in which it is transforming its portfolio from a previously heavily industrial business to one that also includes financial services and a larger presence in media.
Fiat Chrysler Automobiles, the carmaker controlled by the Agnellis, is the biggest shareholder in RCS Mediagroup, publisher of Italian newspaper Corriere della Sera. FCA has its headquarters in the same building as the Economist magazine. Exor is also in talks to acquire reinsurance group PartnerRe for $6.8bn after a long-fought battle to scupper that company’s existing merger with another reinsurer.
Any deal would have to be approved by the four trustees of the Economist Group, including former Conservative minister Lady Bottomley and former Cabinet secretary Lord O’Donnell. The trustees’ role is to preserve “the continued independence of the ownership of the company and the editorial independence of the Economist”.
In a statement, Pearson said it was “in discussions with the Economist Group board and trustees regarding the potential sale of our 50 per cent share in the group. There is no certainty that this process will lead to a transaction.” Media groups Bloomberg, Thomson Reuters and Axel Springer were also approached about the stake, two people close to the situation said. But those companies declined to pursue an acquisition, because owning it would not give them control of the group, the person said.
Pearson acquired half of the Economist in 1957, as part of its acquisition of the Financial Times. But its stake, constituted of B shares, entitle it to name only six of the 13 members of the group’s board. The majority of the board are named by the holders of the A shares, as well as some current and former employees.
The Economist’s editorial independence is safeguarded by the fact that the trustees must approve any transfer of A or B shares, and the appointment of each new editor.
In recent years the Economist Group has been seeking to diversify away from sales of print advertising, which fell 18 per cent in 2014, by launching a foreign-language edition and a new video venture.
In January the Economist appointed Zanny Minton Beddoes as its first female editor in its 172-year history, succeeding John Micklethwait who joined Bloomberg as editor-in-chief.
Unlike the Financial Times, the magazine’s editorial independence is formally enshrined in its corporate set-up.
So strong is the magazine’s editorial department that, while most of the group has moved to Canary Wharf, it has remained in its offices in Mayfair. Managers have now all but given up on the journalists joining them in the Docklands, with one alternative to relocate the whole company somewhere else, a senior employee at the Economist Group said.
Selling the FT Group and the Economist Group stake would leave Pearson with nearly £1bn in net proceeds — strengthening its balance sheet at a time when its credit rating has a negative outlook from Moody’s, due to uncertainty in the education sector.
Pearson’s chief executive John Fallon has pledged to prioritise investments in the company’s existing education business ahead of pursuing further acquisitions.
He has also underlined Pearson’s reluctance to return cash to shareholders through buybacks or special dividends, although the company does have a policy of increasing dividends faster than the rate of inflation.